Who’s Controlling Wall Street?

“The most dangerous creation of any society is the man who has nothing to lose.” -James Baldwin

Right now, the man who has nothing to lose is running amuck on Robinhood. Created by the COVID-19 pandemic, an army of Robinhood traders are leveraging their tech-savvy to wreak havoc on the markets.

One popular online hangout is a Reddit chat room (called a subreddit) WallStreetBets, which boasts 2.1 million degenerates (their words not mine) strong. This month, the collective at WallStreetBets decided to strike back at hedge funds that were shorting declining companies with falling stock prices.

Brick and mortar retailer Gamestop ($GME) was attracting intense interest from hedge funds short-selling its stock – betting on the continued fall of its share price. Gamestop was a prime target of hedge funds because as a brick-and-mortar retailer struggling to survive in the face of the pandemic and until recently, its share price had been in a multiyear decline – accelerated by COVID-19. Its declining share price made it a prime target for hedge funds looking to profit from short-selling its stock.

WallStreetBets decided to cripple these hedge funds for no other reason than to show who’s boss – losing money be damned.

Armed with its social media pull and with free trading accounts on Robinhood with liberal margin policies, WallStreetBets decided to drive up the price of $GME at the beginning of January. On Thursday, $GME hit a record high of $469.42, when just four months ago it was around $6 per share. At the beginning of the month, when this all started, the price was at $17.25 when all this started.

Here’s the danger of groups like WallStreetBets who have nothing to lose and wear that fact like a badge of honor. There will be collateral damage. In fact, by the close of trading on Thursday, there was already collateral damage.

Those who bought at the intraday peak of $469.42 lost more than half of their investment by the end of the day when it closed at $193.60. Not every investor was in on the jig. Innocent investors lost money as well, which goes against the Robin Hood creed of stealing from the rich to give to the poor. This exercise was stealing from the rich and the poor.

The point I’m trying to make is that you can throw fundamentals out the door when it comes to investing in the current stock market. The idea behind stock ownership is owning a piece of a company and profiting from its underlying business as it grows – along with its stock price.

Nothing in today’s market is following even basic economic fundamentals – with stock prices prone to manipulation by the masses.  

Elite investors know better. They don’t risk their portfolios to chance. They would never leave their portfolios vulnerable to the mobs with torches and pitchforks in their hands – intent on burning the whole system to the ground.

Elite investors prefer to invest behind the walled gardens of private markets where it takes more than $1 on Robinhood to play. They’re not being elitists. They’re just protecting their investments. The investor hordes may be able to manipulate and disrupt Wall Street and $6 stocks like $GME, but they can’t manipulate real assets.

Investing in tangible assets means illiquidity, analysis, and a higher barrier to entry – all three strikes against the investing mobs.

The public markets will continue to see continued volatility as reckless investors dive in and out with reckless abandon.

Don’t get stuck in the china shop with the bull. Consider investments shielded from disruption and manipulation.

Don’t Forget The Fundamentals!

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About the author

Kyle Jones is a co-founder and Key Principal of TruePoint Capital, LLC. Kyle is responsible for the company’s strategic planning, investment decisions, asset management, and overseeing all aspects of the company’s financial activities, operations, and investor relations.

Kyle obtained a Bachelor of Science degree from Texas State University – San Marcos, where he also played Division 1 Baseball.